Knowledge that Transforms

[This article develops and estimates a simple model for monthly expected stock returns that relies on the rapidly decaying structure of shorter-horizon (weekly) expected returns. The most striking aspect of our findings is that the rapid mean reversion in short-horizon expected returns implies much greater variation through time in monthly expected returns than has been documented in earlier studies. For instance, during the 1962 to 1985 period, over 25 percent of the return variance of small firms can be explained by time variation in expected returns.]

[This article develops a model of competitive bidding with a resale market. The primary market is modeled as a common-value auction, in which bidders participate for the purpose of resale. After the auction the winning bidders sell the objects in a secondary market, and the buyers in the secondary market receive information about the bids submitted in the auction. The effect of this information linkage between the primary auction and the secondary market on bidding behavior in the primary auction is examined. The auctioneer's expected revenues from organizing the primary market as a discriminatory auction versus a uniform-price auction are compared, and sufficient conditions under which the uniform-price auction will yield higher expected revenues are obtained. An example of our model, with the primary market organized as a discriminatory auction, is the U.S. Treasury bill market.]

[This article presents a model that provides insights about various measures of portfolio performance. The model explores several criticisms of these measures. These include the problem of identifying an appropriate benchmark portfolio, the possibility of overestimating risk because of market-timing ability, and the failure of informed investors to earn positive risk-adjusted returns because of increasing risk aversion. The article argues that these need not be serious impediments to performance evaluation.]